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Americans are overwhelmingly pessimistic about their wallets. According to the University of Michigan’s Surveys of Consumers, just 8% of respondents believe their income will grow faster than inflation over the next year, a figure that has plummeted from 18% as recently as December 2024.
The Consumer Sentiment Index dropped to 51.0 in August 2026, down 7.6% from July’s reading of 55.2.
Joanne Hsu, the survey’s director, pointed to widespread pessimism about purchasing power as the driving force behind the decline. The pain isn’t evenly distributed, either. Older Americans, lower-income households, and less-educated demographics are bearing the brunt of the gloom.
Year-ahead inflation expectations ticked up slightly as well, moving from 4.2% in July to 4.3% in August.
The purchasing power squeeze
The drop from 18% to 8% in the share of consumers expecting income to outpace inflation is one of the more dramatic shifts in the survey’s recent history. A 3.4% year-over-year CPI increase, which is what the July reading showed, means real purchasing power is shrinking for the roughly 72% of consumers who don’t expect their income to keep pace.
Geopolitical uncertainty isn’t helping. Rising tensions related to conflicts involving Iran have added another layer of anxiety, particularly around energy prices.
What this means for markets and policy
Consumer spending accounts for roughly two-thirds of US GDP. The Federal Reserve faces a policy tension: inflation expectations ticking higher would normally argue for keeping rates elevated or even hiking, while collapsing consumer sentiment argues for easing.
The final August survey data is scheduled for release on August 28, 2026.
The 8% figure is the one worth remembering. In a country of over 330 million people, fewer than one in ten believe their income will beat inflation next year.
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